Friday March 6, 2015 Search
Weather | Athens
20o C
11o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
Cyprus depositors face up to 10% haircut as part of bailout deal agreed at Eurogroup

The euro zone struck a deal on Saturday to hand Cyprus a bailout worth 10 billion euros ($13 billion), but demanded depositors in its banks forfeit some money to stave off bankruptcy despite the risks of a wider bank run.

Cyprus becomes the fifth country after Greece, Ireland, Portugal and Spain to turn to the euro zone for financial help in the wake of the region's debt crisis.

In a radical departure from previous aid packages, euro zone ministers forced Cyprus' savers, almost half of whom are believed to be non-resident Russians, to pay up to 10 percent of their deposits to raise almost 6 billion euros.

"I wish I was not the minister to do this, Cypriot Finance Minister Michael Sarris said after 10 hours of late-night talks where euro zone finance ministers agreed the package.

"Much more money could have been lost in a bankruptcy of the banking system or indeed of the country, he said, adding that he hoped a levy and bailout would mark a new start for Cyprus.

Without a rescue, Cyprus would default and threaten to unravel investor confidence in the euro zone that has been fostered by the European Central Bank's promise last year to do whatever it takes to shore up the currency bloc.

But on the Mediterranean island, initial incredulity at the decision gave way to anger.

Co-op credit societies, normally open on Saturdays, were shut for business in the coastal town of Larnaca as depositors started queuing early in the morning to withdraw their cash.

"I'm extremely angry. I worked years and years to get it together and now I am losing it on the say-so of the Dutch and the Germans, said British-Cypriot Andy Georgiou, 54, who returned to Cyprus in mid-2012 with his savings.

"They call Sicily the island of the mafia. It's not Sicily, it's Cyprus. This is theft, pure and simple, said a pensioner.

The bailout was smaller than initially expected and is mainly needed to recapitalize Cypriot banks that were hit by a sovereign debt restructuring in Greece.

The levy on bank deposits will come into force on Tuesday, after a bank holiday on Monday. Cyprus will take immediate steps to prevent electronic money transfers over the weekend.

"As it is a contribution to the financial stability of Cyprus, it seems just to ask for a contribution of all deposit holders, Dutch Finance Minister Jeroen Dijsselbloem, who chaired the meeting in Brussels, told reporters.

Such levies break the taboo of hitting bank depositors with losses, but Dijsselbloem said it would not have otherwise been possible to salvage its financial sector, which is around eight times the size of the economy.

"We are not penalizing Cyprus... we are dealing with the problems in Cyprus, Dijsselbloem said.

Dijsselbloem said that under the program, the island's debt would fall to 100 percent of economic output by 2020.

In return for emergency loans, Cyprus agreed to increase its corporate tax rate by 2.5 percentage points to 12.5 percent.

This should boost Cypriot revenues, limiting the size of the loan needed from the euro zone and keep down public debt.

International Monetary Fund Managing Director Christine Lagarde, who attended the meeting, said she backed the deal and would ask the IMF board in Washington to contribute to the bailout.

"We believe the proposal is sustainable for the Cyprus economy, she said. The IMF is considering proposing a contribution to the financing of the package... The exact amount is not yet specified, Lagarde said.

Cyprus, with a gross domestic product of barely 0.2 percent of the bloc's overall output, applied for financial aid last June, but negotiations were stalled by the complexity of the deal and reluctance of the island's previous president to sign.

Moscow, which has close ties with Nicosia, is likely to help by extending a 2.5 billion euro loan already made to Cyprus by five years to 2021 and reducing the interest rate.

"We have had contacts in recent weeks with the Russian government, said the EU's top economic official Olli Rehn.

"My understanding is that the Russian government is ready to make a contribution with an extension of the loan and a reduction of the interest rate, said Rehn, who is responsible for economic affairs at the European Commission, the EU executive.

Cyprus' finance minister Sarris will travel to Moscow for meetings on Monday to try to pin down the new loan terms.

Cyprus originally estimated it needed about 17 billion euros - almost the size of its entire annual output - to restore its economy to health.

But because a loan of that magnitude would increase its debt to unsustainably high levels and call into question its ability ever to pay it back, policymakers sought to reduce it by finding more revenue sources in Cyprus itself.

Separately, euro zone ministers agreed to extend the maturity of emergency loans to Ireland and Portugal to smooth out their return to market financing this year and next, but details of the extensions will be decided only in April.

[Reuters]

ekathimerini.com , Saturday March 16, 2013 (10:29)  
Greek and German bruisers limber up for rumble in the eurozone
BoG chief Stournaras briefs PM Tsipras on ECBs decisions on Greece [Update]
PM, FinMin in diplomatic push to sell measures
Lenders see slow progress on Greek reforms ahead of Eurogroup
Cash-strapped Greece repays first part of IMF loan due in March
Greece repaid the first 310 million euro installment of a loan from the International Monetary Fund that falls due this month, as it scrambles to cover its funding needs, a government source...
Greece must repay loans in full, bailout fund head says
Greece needs to pay back all the money it received from its euro zone partners rather than asking for debt relief, the head of the euro zone's rescue fund was quoted as saying on Friday. "Gr...
Inside Business
BASKETBALL
Barcelona beats Panathinaikos once more
For the fourth time this season Panathinaikos failed to beat Barcelona, this time in Athens, losing 81-77 on Thursday and denting its chances for a privileged top-two finish in its Euroleagu...
SOCCER
Iraklis, Apollon and Xanthi in Cup semis
The prospect of a second-division team reaching the Greek Cup final has grown considerably after two out of the three teams that made the semifinals this week come from the Football League. ...
Inside Sports
COMMENTARY
PISA, Schengen, mediocrity and isolation
Greeces most serious problem is not the economic and political crisis, though it did contribute greatly to it. At the root of our evil lies our great isolation, not only from our partners i...
COMMENTARY
Balancing the Greek budget: The ancient Athenian perspective
Is democracy good for balancing a budget? For many today the answer is a resonating no. This answer is easy to understand. In the birthplace of democracy, Greece, the states budget is a mes...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
RECENT NEWS
1. Cash-strapped Greece repays first part of IMF loan due in March
2. Greek and German bruisers limber up for rumble in the eurozone
3. Greece must repay loans in full, bailout fund head says
4. BoG chief Stournaras briefs PM Tsipras on ECBs decisions on Greece [Update]
5. Barcelona beats Panathinaikos once more
6. Iraklis, Apollon and Xanthi in Cup semis
more news
Today
This Week
1. BoG chief Stournaras briefs PM Tsipras on ECB's decisions on Greece [Update]
2. Greece must repay loans in full, bailout fund head says
3. Greek and German bruisers limber up for 'rumble in the eurozone'
4. Cash-strapped Greece repays first part of IMF loan due in March
5. Greek-Turkish relations
6. Greece seeks to plug its 'Bermuda Triangle' of lost taxes
Today
This Week
1. Greece to make international protest over Turkey reserving Aegean air space
2. The Greek tax drama
3. SYRIZA feeling the pain
4. Varoufakis to make six reform proposals at Monday's Eurogroup
5. The unlikely winners of Greece's surrender on euro
6. Tsipras reversal draws Greek sympathy as party rumblings rise
Find us ...
... on
Twitter
... on Facebook
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright 2015, H KAΘHMEPINH All Rights Reserved.